ACCT ch 7 smartwork

Amortization refers to the allocation of the cost of ________ assets to expense.

intangible

An asset that has no physical substance is called a(n) ____________ asset

intangible

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of the asset's life and provides better cash flows.

The profit margin ratio is defined as ________ divided by net sales

net income

A(n)_____________ is the exclusive right to manufacture a product or use a process granted for a period of ________________ years.

patent, 20

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company.

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

Use of MACRS for tax purposes usually results in _______________ income tax in the earlier years of an asset's life.

reducing

The depreciable cost of an asset is the asset's cost minus its estimated _________ value.

residual

_________ value is the amount the company expects to receive for the asset at the end of its service life

residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value.

An asset __________ occurs when an asset is no longer useful, but cannot be sold.

retirement

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the ____________ life of the asset.

service

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method.

The allocation of the cost of a tangible asset over its service life is referred to as

depreciation

The formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Which of the following items are initially recorded as an expense on the income statement? > Purchased intangibles > Advertising costs > Research and development costs

> Advertising costs > Research and development costs

The types of expenditures that can occur subsequent to an asset's acquisition are > goodwill. > improvements. > additions. > repairs and maintenance.

> Improvements > Additions > Repairs and maintenance

Which of the following are long-term tangible assets? > Trademark > Copyright > property > Equipment > Accounts receivable

> Property > Equipment

A retirement or abandonment of an asset is different from a sale of an asset because > the residual value is included as a gain. > a gain is recognized for the undepreciated portion of the equipment. > a loss must be recognized for the remaining book value. > no cash is received.

> a loss must be recognized for the remaining book value. > no cash is received.

Long-term tangible assets include > buildings. > equipment. > goodwill. > land. > patents.

> buildings > equipment > land

The journal entry to retire old equipment that is not fully depreciated includes a: > credit to loss > debit to loss > debit to cash > credit to equipment > debit to accumulated depreciation

> debit to loss > credit to equipment > debit to accumulated depreciation

Which depreciation methods allocate the cost of long-term assets based on time? > activity methods > valuation method > declining-balance > straight-line

> declining-balance > straight-line

Which depreciation methods allocate the cost of long-term assets based on time? > declining-balance > valuation method > activity methods > straight-line

> declining-balance > straight-line

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A).

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

Which of these are parts of the journal entry to record depreciation?

Debit Depreciation Expense Credit Accumulated Depreciation Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A).

Which of the following does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

Units of production or units of output are alternative terms for the__________-_______ depreciation method.

activity based

Depreciation is a process of cost ___________, and not a process of valuation.

allocation

Allocating the cost of intangible assets to expense is referred to as

amortization

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

For accounting purposes, depreciation is

an allocation of a cost of an asset.

The allocation of the cost of a tangible fixed asset is referred to as ______________, whereas the allocation of the cost of an intangible asset is referred to as _______________.

depreciation, amortization

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides

benefits

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the ______ ________ of the asset

book value

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2/estimated service life

The purchase price and all costs to bring an asset to its desired condition and location for use should be

capitalized

A(n) _________ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

A(n) ______________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

A(n)________________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x_______________

current-year activity or production

Straight-line, declining-balance, and activity-based refer to methods commonly used to ____________ property, plant, and equipment.

depreciate

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

The depreciable cost is

the cost of the asset minus the residual value.

Straight-line deprecation is calculated as the depreciable cost divided by

the estimated service life of the asset.

The service life or useful life of an asset is

the estimated use that the company expects to obtain from the asset before disposing of it.

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

Straight-line and declining balance methods allocate the cost of a long-term asset based on _____________, while an activity-based method allocates the cost of an asset based on its_____________

time, use

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries? > Credit equipment $100,000 > Credit gain on exchange of asset $40,000 > Credit equipment $80,000 > Debit equipment $65,000 > Debit equipment $80,000 > Debit accumulated depreciation $60,000 > Credit accumulated depreciation $60,000

> Credit equipment $100,000 > Credit gain on exchange of asset $40,000 > Debit equipment $80,000 > Debit accumulated depreciation $60,000

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries? > Debit loss on exchange $10,000 > Credit accumulated depreciation $40,000 > Debit equipment $35,000 > Credit equipment $90,000 > Debit loss on equipment $15,000 > Debit equipment $40,000 > Debit accumulated depreciation $40,000

> Debit loss on exchange $10,000 > Credit equipment $90,000 > Debit equipment $40,000 > Debit accumulated depreciation $40,000

Which of the following are expenditures for assets subsequent to acquisition? > Freight charges > Improvements > Additions > Repairs and maintenance

> Improvements > Additions > Repairs and maintenance

Which of the following are commonly used depreciation methods? > Straight-line > Activity-based > Value-based > Declining-balance > Increasing-balance

> Straight-line > Activity-based > Declining-balance

Other terms used for an activity-based depreciation method are: > units of production method > productivity method > base depreciation method > units of output method

> units of production method > units of output method

True or false: Depreciation is a valuation method for property and equipment.

False Reason: Depreciation is a process of cost allocation, not valuation.

Which statement is true about the straight-line method of depreciation? > It is the preferred method for companies expecting to use the asset more in its early years of life. > It is an accelerated method of depreciation. > It recognizes expense proportionately with the amount of use of the asset. > It allocates an equal amount of depreciation to each year the asset is used.

It allocates an equal amount of depreciation to each year the asset is used.

What is the formula for the profit margin ratio?

Net income divided by net sales.

The exclusive legal right to manufacture a product or to use a process is called a(n)

Patent

Capitalized

Purchase price plus costs necessary to get asset ready for use

Expensed

Research and development costs